HMRC SDLT: Shared Ownership Trusts: Market Value Election and Stamp Duty Land Tax Guidance

Shared Ownership Trust: Market Value Election

Purchasers involved in a shared ownership trust can opt for a market value election similar to that available for shared ownership leases. This election impacts how the market value is calculated and reported for tax purposes, specifically for stamp duty land tax. The election must be made within a specified timeframe and is irreversible once submitted.

• The market value is calculated on a vacant possession basis, disregarding the standard definition in FA03/S118.
• The election is made through the land transaction return, either initially or by amendment within 12 months.
• Once the election is made, it is irrevocable and cannot be changed by further amendments.
• The chargeable consideration is based on the trust terms, reflecting the dwelling’s market value.
• Rent-equivalent payments are excluded from stamp duty land tax considerations.
• Equity-acquisition payments and interest transfers upon trust termination are exempt from charges, provided the initial tax is paid.

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Understanding Shared Ownership Trusts and Market Value Elections

When you buy a property through a shared ownership trust, you have the option to make a market value election. This is similar to what you can do with shared ownership leases. It’s important to understand what this means and how it affects the tax you owe when you declare your ownership under the shared ownership trust.

Key Terms Defined

• Shared Ownership Trust: A type of arrangement that allows individuals to buy a share of a property while renting the remaining share.
• Market Value Election: An option for purchasers to set the market value as the basis for calculating the amount they pay for stamp duty land tax (SDLT).
• Chargeable Consideration: The amount that is used to calculate SDLT.

The market value election allows you to determine SDLT based on the property’s market value, instead of the amount actually paid or agreed in the purchase arrangement.

The Market Value Calculation

Under the rules, the traditional definition of market value does not apply when you are making this election. Specifically, FA03/SCH9/PARA7(5) states that the market value is calculated based on the property being empty – what we call ‘vacant possession’. This means you estimate how much the property would sell for if no one lived there and it was ready for a new owner.

How to Make the Election

You make the market value election through your land transaction return when you declare your shared ownership trust. Here’s a step-by-step guide:

• Include the market value of the property as the consideration in the return.
• If you initially submitted your return and need to change it to reflect the market value, you can do so by amending your return.
• Keep in mind that any amendments need to be made within 12 months of the original filing date.

Important Note on Irrevocability

Once you make the market value election, you cannot change it – the decision is final. This means even if you later decide you’d prefer to base your SDLT on a different amount, you cannot amend this election because it is irrevocable.

The Effects of a Valid Election

Making a valid market value election has significant implications for how SDLT is calculated in your case:

• The chargeable consideration for the declaration of the shared ownership trust is the amount specified in the trust, which should reflect the market value of the property. This market value is essential for determining the initial capital contribution you make.
• When it comes to calculating SDLT, you do not need to consider any rent-equivalent payments that you may have made as part of your agreement.

Exemptions After Tax Payment

Once you have paid any SDLT that is due for the declaration of your shared ownership trust, some payments related to your ownership may be exempt from further charges. These exemptions include:

• Equity-Acquisition Payments: Any payments you make to increase your share in the property will not incur additional SDLT.
• Transfer of Interest in Trust Property: When the trust comes to an end and your interest in the property is transferred to you, this transfer is also exempt from SDLT.

Summary of the Process

Here’s how it works in practice. Imagine you are purchasing a 50% share of a property valued at £200,000 through a shared ownership trust. By making the market value election, you could declare the market value of £200,000 as the consideration in your SDLT return. If you needed to change this later, you would have to do so within 12 months, and remember, once you decide on this amount, it cannot be altered.

When you pay any SDLT due, later increases in your ownership share will not add to your SDLT liability. This makes the shared ownership trust a potentially tax-efficient way to purchase a property with shared ownership.

Final Notes

Always make sure to consult with a tax or legal professional when dealing with shared ownership trusts and making elections. This will ensure you fully understand your rights, obligations, and the best steps to take, particularly regarding tax implications and any necessary paperwork.

By navigating the shared ownership framework with a good understanding of the market value election and its consequences, you can make informed decisions that work to your financial advantage.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Shared Ownership Trusts: Market Value Election and Stamp Duty Land Tax Guidance

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